PayPal posts a beat and raise, driving the stock through key resistance levels

PayPal's (PYPL) Q2 results surpassed analyst expectations, delivering an adjusted EPS of $1.19, significantly higher than the consensus estimate of $0.99. The company's revenue rose 8.2% year-over-year to $7.89 billion, also beating the consensus forecast of $7.82 billion. This growth was primarily driven by an 11% increase in total payment volume (TPV), which reached $416.81 billion. Key contributors included a 28% rise in unbranded card-processing volumes and a 9% increase in Venmo transactions. Despite a 0.4% decline in its active account base to 429 million, PayPal's payment transactions grew 8% to 6.6 billion.

Shares of PYPL are reacting favorably to the news. The stock has edged above a convergence of resistance in the moving averages ($59-62). If PYPL holds above these levels, then it would set up as a solid swing trade as it breaks out from the downward pressure from the last two months. The stock has traded between $56-70 over the past year. Shares should be able to grind toward the high end of that range.

In terms of guidance, PayPal has raised its FY24 EPS outlook to a range of $3.88 to $3.98 from the prior guidance of approximately $3.65. For Q3, the company expects adjusted EPS to grow by high single digits, with revenue anticipated to increase by mid-single digits. This positive revision reflects PayPal's confidence in its ongoing strategic transformation and operational efficiency improvements.

PayPal's Q2 transaction revenue came in at $7.15 billion, up 9.1% year-over-year and above the estimated $7.08 billion. Other value-added services revenue slightly increased to $732 million, just above the $726.3 million consensus. U.S. net revenue grew by 8.1% to $4.55 billion, and international net revenue rose by 8.4% to $3.34 billion. The company's transaction margin dollars increased by 7.8% to $3.61 billion, while total operating expenses were $6.56 billion, lower than the estimated $6.71 billion.

The company reported GAAP operating income of $1.3 billion, a 17% year-over-year increase, and non-GAAP operating income of $1.5 billion, up 24%. PayPal's GAAP EPS increased by 17% to $1.08, while non-GAAP EPS surged 36% to $1.19. The company's operating margins also improved, with GAAP operating margin expanding by 126 basis points to 16.8% and non-GAAP operating margin by 231 basis points to 18.5%.

Looking at other financial metrics, PayPal's free cash flow for Q2 was $1.37 billion, with adjusted free cash flow at $1.14 billion, exceeding the estimated $1.06 billion. The company plans to execute a share buyback of $6 billion, up from the previous guidance of at least $5 billion. Additionally, PayPal expects its FY24 free cash flow to be around $6 billion, an increase from the previous estimate of about $5 billion.

CEO Dan Schulman expressed confidence in PayPal's trajectory, highlighting the strong transaction margin dollar growth, strategic progress, and innovation investments. Schulman emphasized that the company is operating from a position of strength, focusing on long-term profitable growth while continuing to deliver value for customers.

Overall, PayPal's Q2 performance and upgraded guidance have positively impacted investor sentiment, as evidenced by the 4.4% premarket rise in its shares. The company's strong results and optimistic outlook underscore its ability to navigate current market conditions and capitalize on growth opportunities in the payments industry.